Definition of Consortium banks

Consortium banks

A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. consortium banks are common in the Euromarket and are active in loan syndication.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan banks play a role analogous to that played by the Federal Reserve banks vis-Ă -vis
member commercial banks.

Money center banks

banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

Federal Reserve Banks

The twelve district banks in the Federal Reserve System.

At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.

Broker loan rate

Related: Call money rate.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Bullet loan

A bank term loan that calls for no amortization.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Commodities Exchange Center (CEC)

The location of five New York futures exchanges: Commodity
Exchange, Inc. (COMEX), the New York Mercantile exchange (NYMEX), the New York Cotton Exchange,
the Coffee, Sugar and Cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.

Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.

Equivalent loan

Given the after-tax stream associated with a lease, the maximum amount of conventional
debt that the same period-by-period after-tax debt service stream is capable of supporting.

Federal agency securities

Securities issued by corporations and agencies created by the U.S. government,
such as the federal home loan Bank Board and Ginnie Mae.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate

This is the interest rate that banks with excess reserves at a federal Reserve district bank
charge other banks that need overnight loans. The Fed Funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the federal
Reserve Board located in Washington, D.C. The system includes 12 federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Fixed-rate loan

A loan on which the rate paid by the borrower is fixed for the life of the loan.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.

Homemade dividend

Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.

Homemade leverage

Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can
duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational
investors will simply borrow on personal accounts to buy shares in unlevered firms.

Hot money

money that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.

Intercompany loan

loan made by one unit of a corporation to another unit of the same corporation.

In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-money
by $0.50 an ounce.
Related: put.

Inventory loan

A secured short-term loan to purchase inventory. The three basic forms are a blanket
inventory lien, a trust receipt, and field warehousing financing.

Jumbo loan

loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for purchase or
securitization by the federal agencies.

Loan amortization schedule

The schedule for repaying the interest and principal on a loan.

Loan syndication

Group of banks sharing a loan. See: syndicate.

Loan value

The amount a policyholder may borrow against a whole life insurance policy at the interest rate
specified in the policy.

Money base

Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

Money management

Related: Investment management.

Money manager

Related: Investment manager.

Money market

money markets are for borrowing and lending money for three years or less. The securities in
a money market can be U.S.government bonds, treasury bills and commercial paper from banks and
companies.

Money market demand account

An account that pays interest based on short-term interest rates.

Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
$1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.

Money market hedge

The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.

Money market notes

Publicly traded issues that may be collateralized by mortgages and MBSs.

Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.

Money rate of return

Annual money return as a percentage of asset value.

Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.

Multicurrency loans

Give the borrower the possibility of drawing a loan in different currencies.

Multifamily loans

loans usually represented by conventional mortgages on multi-family rental apartments.

New money

In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
those maturing.

Out-of-the-money option

A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of
the underlying security.

Parallel loan

A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.

Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a
buffer stock of cash.

Project loan certificate (PLC)

A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
multifamily, hospital, and nursing home loans.

Project loan securities

Securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Project loans

Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes,
nursing homes, hospitals, and other development types.

Reinvoicing center

A central financial subsidiary used by an MNC to reduce transaction exposure by having
all home country exports billed in the home currency and then reinvoiced to each operating affililate in that
affiliate's local currency. It can also be used as a netting center.

Savings and Loan association

National- or state-chartered institution that accepts savings deposits and
invests the bulk of the funds thus received in mortgages.

Self-liquidating loan

loan to finance current assets, The sale of the current assets provides the cash to repay
the loan.

Speculative demand (for money)

The need for cash to take advantage of investment opportunities that may arise.

Term loan

A bank loan, typically with a floating interest rate, for a specified amount that matures in between
one and ten years and requires a specified repayment schedule.

Time value of money

The idea that a dollar today is worth more than a dollar in the future, because the dollar
received today can earn interest up until the time the future dollar is received.

Transaction loan

A loan extended by a bank for a specific purpose. In contrast, lines of credit and revolving
credit agreements involve loans that can be used for various purposes.

Transaction demand (for money)

The need to accommodate a firm's expected cash transactions.

Variable rate loan

loan made at an interest rate that fluctuates based on a base interest rate such as the
Prime Rate or LIBOR.

Loans payable

Amounts that have been loaned to the company and that it still owes.

Money Market

A market that specializes in trading short-term, low-risk, very liquid
debt securities

activity center

a segment of the production or service
process for which management wants to separately report
the costs of the activities performed

cost center

a responsibility center in which the manager has
the authority to incur costs and is evaluated on the basis
of how well costs are controlled

investment center

a responsibility center in which the manager
is responsible for generating revenues and planning
and controlling expenses and has the authority to acquire,
dispose of, and use plant assets to earn the highest rate
of return feasible on those assets within the confines and
to the support of the organization’s goals

profit center

a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses

pseudo microprofit center

a center for which a surrogate
of market value must be used to measure output revenue

real microprofit center

a center whose output has a market value

responsibility center

a cost object under the control of a manager

revenue center

a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs

Profit center

An entity within a corporation against which both revenues and costs are
recorded. This results in a separate financial statement for each such entity, which
reveals a net profit or loss, as well as a return on any assets used by the entity.

Federal Reserve (the Fed)

The central bank in the United States, responsible for setting interest rates.

money market

Market for short-term financial assets.

Federal Funds Rate

The interest rate at which banks lend deposits at the federal Reserve to one another overnight.

Federal Open Market Committee (FOMC)

Fed committee that makes decisions about open-market operations.

Federal Reserve Banks

The twelve district banks in the federal Reserve System.

Federal Reserve Board

Board of Governors of the federal Reserve System.

Federal Reserve System

The central banking authority responsible for monetary policy in the United States.

High-Powered Money

See money base.

Money

Any item that serves as a medium of exchange, a store of value, and a unit of account. See medium of exchange.

Money Base

Cash plus deposits of the commercial banks with the central bank.

Money Market

A financial market in which short-term (maturity of less than a year) debt instruments such as bonds are traded.

Money Multiplier

Change in the money supply per change in the money base.

Money Rate of Interest

See interest rate, nominal.

Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.

Printing Money

Sale of bonds by the government to the central bank.

Quantity Theory of Money

Theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.

Real Money Supply

money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.

Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.

Federal Employer Identification Number

A unique identification number issued
by the federal government used for payroll purposes to identify the company
when it deals with the Internal Revenue Service.

Federal Insurance Contributions Act of 1935 (FICA)

A federal Act authorizing the government to collect Social Security and Medicare payroll taxes.

Federal Unemployment Tax Act (FUTA)

A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.

Loan Covenants

Express stipulations included in loan agreements that are designed to monitor
corporate performance and restrict corporate acts, affording added protection to the lender.

Negative Loan Covenants

loan covenants designed to limit a corporate borrower's behavior
in favor of the lender.

Positive Loan Covenants

loan covenants expressing minimum and maximum financial measures
that must be met by a borrower.

Distribution center

A branch warehouse containing finished goods and service
items intended for distribution directly to customers.

Fiat Money

Fiat money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.

Money Laundering

This is the process by which "dirty money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

Bridge Loan

A short term loan to cover the immediate cash requirements until permanent financing is received.

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